FOR IMMEDIATE RELEASE
Thursday, May 13, 2010

Isakson Praises Unanimous Passage of His Amendment to Strengthen Sound Mortgage Lending

WASHINGTON – U.S. Senator Johnny Isakson, R-Ga., today praised the Senate’s unanimous passage of his amendment to the financial reform bill that would require regulators to establish a category of well-underwritten loans and to exempt banks from retaining risk in those loans that regulators determine are safely securitized.

“Risk retention is not the cure-all to good lending. Underwriting is,” said Isakson, who spent more than three decades in the real estate industry. “We're not going back to making zero down, interest-only, reverse amortization loans anymore. But we are going back to the good old days where there is a down payment, where there's skin in the game, where there's an income-to-debt ratio and where the borrower is qualified to borrow the money that they're borrowing. The only risk retention that will be required is when somebody is making a bad loan, which means people will stop making bad loans.”

The current bill did not ensure an exemption for mortgages that are safely securitized. Without an explicit exemption for such well-underwritten mortgages, Isakson believes the bill’s one-size-fits-all requirements would have reduced consumer choice, increase the cost of credit and cost our economy jobs.

His amendment, which he offered with Sen. Mary Landrieu, D-La., would require regulators to establish a category of well-underwritten loans called “Qualified Residential Mortgages” that would be exempt from the risk retention requirements in the bill. To define a “Qualified Residential Mortgage,” regulators would use back-to-basics underwriting and product features proven to reduce consumer defaults, such as requiring documentation of income, setting reasonable payment-to-income ratios and prohibiting the use of features such as negative amortization.

By creating a regulatory "gold standard" for well-underwritten mortgages, Isakson believes the qualified mortgage safe harbor strengthens sound lending behavior within the primary market for qualified mortgages while discouraging excessive risk taking in the non-qualified sector through risk retention.

The amendment was endorsed by the American Bankers Association, Community Mortgage Banking Project, Community Mortgage Lenders of America, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association, Mortgage Insurance Companies of America, National Association of Homebuilders and Real Estate Services Providers Council, Inc.

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